Funds 101: Dollar disclosure for fund managers

The default position for the disclosure of fees and costs is that they must be disclosed in dollar terms unless ASIC has provided relief. This article explains what dollar disclosure means for the fees and costs section of your product disclosure statement (PDS) and periodic statements, when you can use alternatives like percentages or estimates, and what good disclosure looks like in practice.

This is part of our Funds 101 series, aimed at fund managers who want a practical understanding of their disclosure obligations without wading through legislation.

The basic rule: show investors what they will pay

The fees and costs section of a PDS must give retail investors a genuine sense of what they will pay. The default expectation is that amounts are expressed in Australian dollars.

For managed investment products, ASIC prescribes a standardised fees and costs template. This template is designed to make products comparable so an investor can look at two funds side by side and understand the cost difference. It uses a ‘hypothetical balanced fund’ calculation to produce illustrative dollar figures.

Beyond the template, your PDS must also meet the overarching requirement to be clear, concise and effective. That standard applies to every aspect of your fee disclosure, whatever form it takes.

When exact dollar amounts are not possible

Not every fee can be expressed as a precise dollar figure at the time you prepare your PDS. Common examples include:

• Performance fees – calculated by reference to future investment returns, which are unknown when the PDS is issued.
• Transaction costs and buy/sell spreads – which depend on the volume and timing of investor transactions and prevailing market conditions.
• Indirect costs in fund-of-funds structures – costs borne at the level of underlying funds that may not be precisely known to the issuer.
• Variable management fees – where the amount fluctuates with the size of the fund.

In these situations, providing a speculative dollar figure could itself be misleading, as it may suggest a level of precision that does not exist. ASIC has provided a mechanism to deal with this.

Using alternatives to dollar amounts

Where a precise dollar figure is not reasonably practicable, ASIC relief allows fund managers to use one or more alternative forms of disclosure. The obligation to disclose does not go away, only the form changes.

The alternatives you can use are:

• Percentages – for example, a management fee expressed as a percentage of net asset value per annum.
• Ranges – for example, disclosing that a performance fee falls within a specified percentage band.
• Estimates – a dollar estimate based on clearly stated assumptions.
• Formulas – the mathematical formula by which a fee is calculated.
• Narrative descriptions – explaining how and when a cost applies and what factors determine its size.

In practice, these approaches are often combined. A well-drafted PDS might express a management fee as a percentage of NAV, provide a worked dollar example based on a stated assumed fund size, and describe performance fee arrangements using an illustrative formula with a worked example.

What good disclosure looks like

Whichever form you use, your fee disclosure needs to leave a retail investor genuinely able to understand the costs of their investment. The test is whether a reader, an ordinary retail investor, not a financial professional, can meaningfully understand what they might pay and why.  This is often referred to as the ‘Burnie Pub Test’.[1]

Some practical pointers:

• Be specific about assumptions. If you provide a dollar estimate, say clearly what assumptions underlie it (for example, a fund size of $50,000,000 or a return of 8% per annum). Vague estimates are worse than no estimate at all.
• Use worked examples. A step-by-step example showing how a performance fee is calculated in a given scenario is often more useful to investors than a formula alone.
• Explain the variability. If a cost can vary significantly, explain the range of outcomes and the factors that drive it.
• Explain industry jargon. Terms like ‘high water mark’ or ‘hurdle rate’ should be explained in plain English when they appear in fee descriptions.
• Cross-reference within your PDS. If your fees and costs table refers to a performance fee, make sure the body of the PDS explains it clearly, and that both descriptions are consistent.

Periodic statements: an ongoing obligation

Dollar disclosure does not end, of course, when the PDS is issued. Dollar disclosure applies to periodic statements as well.

These statements must disclose, in dollars, the fees deducted, transactions undertaken, and the value of the investment during the period. Because these amounts are known at the time the statement is prepared, the alternatives described above generally will not apply. Periodic statements must use actual dollar figures.

Key reminders for fund managers

• Dollar disclosure is the default. If an amount is ascertainable, express it in Australian dollars.
• Alternatives are available when it is not practicable (or potentially misleading) to disclose a fee or cost in a dollar amount.
• The clear, concise and effective standard applies regardless of the form of disclosure you use.
• Periodic statements must use actual dollar amounts, not estimates or percentages.
• Review your PDS fee disclosure regularly. Costs change, product structures evolve, and your disclosure should keep pace.

Fund managers should also note that ASIC’s instrument providing relief from strict dollar disclosure is due to expire on 1 October 2026. ASIC is currently consulting on a proposed remake, so fund managers should monitor the outcome and review their existing PDS disclosure practices against any changes.

For further information, please contact Chris Mee at cmee@cnmlegal.com.au or Jessica Bauers at jbauers@cnmlegal.com.au, or call 07 3211 4010.

This article is produced as general information in summary for clients and should not be relied upon as a substitute for detailed legal advice or as a basis for formulating business or other decisions. CNM Legal asserts copyright over the contents of this article.

[1] The ‘Burnie Pub Test’ was a standard coined by former Minister for Superannuation and Corporate Law, Senator Nick Sherry. It called for financial product disclosure documents (like Product Disclosure Statements) to be short and simple enough that an average patron at a local pub in his hometown of Burnie, Tasmania, could read, understand, and use them